Energy and Climate Change: A Washington Perspective

Transcription

1 Energy and Climate Change: A Washington Perspective Ross Eisenberg Counsel, Environment & Energy U.S. Chamber of Commerce 1

2 Both Congress and the Obama administration are committed to regulating emissions that cause global warming and to moving from a fossil fuel society to a green energy society. These new policies will change how and what energy we use, what economic development is realistic, which industries will be regulated, and U.S. competitiveness in the world. 2

3 Two Paths to Controlling GHGs Path 1: Legislation Cap and trade appears to be the vehicle Congress has decided on; carbon tax remains in the background. Key legislation is the American Clean Energy and Security Act of 2009, passed by the House of Representatives by a vote of In 2008, the Senate considered a cap and trade bill, the Lieberman-Warner Climate Security Act. This bill was defeated on the floor by a vote of Path 2: Regulation EPA is weighing options for regulating GHGs under the existing framework of the Clean Air Act. Massachusetts v. EPA, an April 2007 opinion of the U.S. Supreme Court, required EPA to determine whether GHGs from new motor vehicles cause or contribute to air pollution that endangers public health or welfare. EPA issued a proposed finding of endangerment and is taking public comments until June 23,

4 Path 1: Legislation 4 4

5 The American Clean Energy and Security Act Procedural Background HR 2454: Introduced May 15, 2009 (932 pages) Drafted by Reps. Waxman (D-CA) and Markey (D-MA); supported by President Obama and Democratic Congressional Leadership Passed by Energy and Commerce Committee (33-25), May 21, 2009 Passed by the House of Representatives ( ) June 26, Democrats voted against the bill; 8 Republicans voted for it Senate plans to take up companion legislation in September; Sen. Boxer will introduce her part on Sept. 8; all committees have a Sept. 28 deadline to complete their markups 5

6 The American Clean Energy and Security Act Main Parts of the Bill Cap and Trade Program GHG reduction targets below 2005 levels: 17 percent by percent by percent by 2050 Renewable Electricity Standard 20 percent by % from renewables, other 5% from efficiency Governor can reduce to 12% with 8% from energy efficiency if state can t meet mandate Energy Efficiency Mandates and Building Standards 6

7 The American Clean Energy and Security Act Dividing the Pie The Committee agreed to allocate the following percentage of free credits to affected industries as follows: Sector Electricity Consumers Natural Gas Consumers Home Heating Oil / Propane Trade Vulnerable industries Clean Vehicles Refiners CCS Technology Renewables / Efficiency **Trade vulnerable industries receive up to 15% in 2014, declining annually until ** to TBD

8 Winners and Losers on Allocations Graphic courtesy of the American Petroleum Institute. Allocations based on 5/15/09 version of the bill; emissions data from 2009 EIA Annual Energy Outlook 8

9 The American Clean Energy and Security Act A Quick Snapshot: The Good, the Bad, and the Ugly The Good Free credits to many industry sectors In the early years, price spikes will not be as bad as in prior legislation this is due to the free allocations to electric utility sector, natural gas, etc. Many existing CAA provisions (e.g., NAAQS, Title V, New Source Review, Hazardous Air Pollutants) are preempted Dingell amendment Clean Energy Bank will help bring nuclear and other technologies online 9

10 The American Clean Energy and Security Act A Quick Snapshot: The Good, the Bad, and the Ugly The Bad Nuclear energy still under-represented problematic when most of the economic studies rely on huge new nuclear builds (e.g., 96 new GW) GHG caps are still very aggressive (83% by 2050) and will result in a massive shift in our energy production and use FERC has oversight authority over the cap and trade market, EPA the strategic allowance reserve but neither has the expertise. (CFTC has jurisdiction over derivatives.) Greenhouse gases is open-ended, so activists can petition EPA to add other gases under the cap and trade system Although an entity must emit 25,000 tons of CO2 annually to be covered by the cap, this can eventually be changed without an act of Congress. Starting in 2020, EPA may lower the threshold for coverage by the cap and trade program. 10

11 The American Clean Energy and Security Act A Quick Snapshot: The Good, the Bad, and the Ugly The Ugly No assurance that renewable or alternative energy sources will be brought online quickly to replace the fossil-based energy that the bill s declining CO 2 caps would force out of the system Is not international in scope, will not materially affect CO2 concentrations 1,500 new mandates and regulations Only prohibits NSPS under CAA for sources under cap-and-trade conceivably NSPS could be applied to the other 27 million businesses that emit CO2 State GHG programs are only delayed until 2017 not preempted! Findings and Purpose section states that GHGs are man-made and cause injury to persons, property, environment, etc.; boon for trial attorneys Border tariff provisions could spark a trade war Don t kid yourself this bill will have a cost! 11

12 Impact of Waxman-Markey on the U.S. According to a May 2009 study performed by CRA International and released by the National Black Chamber of Commerce, the enactment of H.R would result in the following economic impacts: Cost of carbon credits/allowances to reach $22 per metric ton of CO2 by 2015, $46 by 2030, $124 by The cost of credits is restrained by availability of international offsets. Retail electricity rates would rise by an estimated 7.3% in 2015, 22% in 2030, and a large amount of 45% in Retail natural gas rates would rise by 10% in 2015, 16% in 2030, and 34% in Rate increases above represent artificially lower increases to the extent that utilities return the value of their free allocations under ACES to customers through reductions in fixed charges. The cost of using motor fuels would increase 12 cents per gallon by After that, the cost will increase 5% (23 cents per gallon) by 2030 and 11% (59 cents per gallon) by The United States would face a net reduction in employment of 2.3 million to 2.7 million jobs in each year of the policy through These reductions are net of substantial gains in green jobs. While all regions of the country would be adversely affected, the West, Oklahoma/Texas and the Mississippi Valley regions would be disproportionately affected. In 2015, gross domestic product (GDP) is estimated to be 1.0% ($170 billion) less than business-as-usual levels, driven principally by declining consumption. In 2030, GDP is estimated to be roughly 1.3% ($350 billion) below the baseline level. In 2050, GDP is estimated to be roughly 1.5% ($730 billion) below the baseline level. 12

13 Modeler Name Baseline Forecasted to Nuclear Assumptions Economic Studies: Assumptions Matter EIA Annual Energy Outlook GW of new nuclear capacity by 2030 EPA Annual Energy Outlook Grows 150% from 2005 levels by 2050 (roughly 150 new plants) CBO Annual Energy Outlook Not discussed CRA/NBCC Annual Energy Outlook GW by 2050 in low cost case (BAU is 206 GW); 103 GW by 2050 in high cost case. NAM/ACCF Annual Energy Outlook GW by 2030 in high cost case; 25 GW in low cost case. CCS Assumptions 69 GW of coal with CCS by GW total CCS available in 2020 (10 from coal), 43 GW in 2030, 60 GW in 2050 (check this) quantity is the equivalent of 109 CCS units at 550 MW each. Not discussed 270 GW by 2050 in low cost case (BAU is 180 GW); 180 GW by 2050 in high cost case. 15 GW each (coal and gas) by 2030 in high cost case; 30 GW each (coal and gas) in 2030 in low cost case. Offsets Assumptions Very large use of offsets. 1.2 billion metric tons of offsets generated in 2020 (286 million domestic, 966 million international). 1.8 billion metric tons of offsets generated in 2030 (501 million domestic, 1.3 billion international). Assumes international offset price is lower than CO2 credit price ($10 in 2015, $13 in 2020, $21 in 2030, $34 in 2040, $55 in 2050) Assumes businesses will purchase $8 billion worth of international offsets and $3 billion worth of domestic offsets. Full use of international offsets 15% offsets in both cases (split 95% domestic, 5% international) What happens if assumptions are changed? When technology is 50 percent costlier than base case and no international offsets are available, allowance price is $190 in 2030, meaning 77% increase in electricity prices, 33% rise in gas prices Restricting the use of international offsets increases allowance price by 89%. Holding nuclear to BAU levels increases allowance price by 15% In a follow-up report on offsets, CBO estimates that if offsets are not used, the 2030 net cost would jump from $101 billion to $248 billion -- a 150 percent increase. Similarly, the 2030 allowance price would rise from $40 to $138 if no offsets were available/used If offsets are not available, prices skyrocket even further. Costs increase even more in the high cost scenario. 13

14 Impact of ACES on Allowance Prices Allowance Cost (dollars) Year No Matter the Assumptions, Prices Go Up EIA EPA CBO CRA ACCF

15 Impact of ACES on Electricity Prices Percent Change Year No Matter the Assumptions, Prices Go Up EIA EPA CRA ACCF

16 Impact of ACES on Annual Household Consumption Decrease (in dollars) EIA EPA CBO CRA ACCF No Matter the Assumptions, Consumption Goes Down

17 Bureaucracy Expansion Act? 17

18 Bureaucracy Expansion Act? 18

19 Bureaucracy Expansion Act? 19

20 Will It Pass? U.S. Senate: The Magic Number is 60 Makeup of the Senate Democrats: 58 Republicans: 39 Independents: 2 Committee Jurisdictional Issues? Boxer vs. Baucus Boxer vs. Bingaman? TIMING 20

21 21

22 Brown-Green Divide: Coal 22

23 Brown-Green Divide: Autos 23

24 Gang of Sixteen Dorgan ND Conrad SD MI Johnson Stabenow Levin NE OH Nelson IN CO *Bennet MO Brown Bayh McCaskill WV VA Webb WV NM Bingaman Lincoln Rockefeller Byrd AR Pryor *Seat formerly held by Ken Salazar, now Secretary of the Interior. 24

25 States With Majorities Voting Against Waxman-Markey in the House With Senate Gang of 16 Overlay (States voting against are in RED) Dorgan ND Conrad MI SD Johnson Stabenow NE Levin OH Nelson IN CO MO *Bennet McCaskill Bayh Brown WV VA Webb WV NM Bingaman Lincoln Rockefeller Byrd AR Pryor *Seat formerly held by Ken Salazar, now Secretary of the Interior 25

26 Path 2: Regulation 14 26

27 Who is Regulating: Government Czars & Czarinas EPA DOC DOT CYBER CAR CEQ Melissa SteveHathaway Rattner DHS HHS IP TECH TO BE DECIDED Aneesh Chopra???? GOVT BORDER REFORM URBAN Derek Derek Douglas Douglas EDUCATION HUD NOAA ECONOMY Adolfo Adolfo Carrion Carrion Lawrence Lawrence Summers Summers OMB DOE DOI INTELLIGENCE Ret. Ret. Navy Navy Adm. Adm. Dennis Dennis Blair Blair VA OIRA DOL Lt. Lt. Gen. Gen. Douglas Douglas Lute Lute Alan Bersin Formerly Nancy Killefer TREASURY WAR UN HEALTH CARE Formerly Nancy-Ann Tom Daschle DeParle USDA USTR DRUG DRUG Gil GilKerlikowske Kerlikowske ENERGY ENERGY DOD Carol CarolBrowner Browner THE SUPER CABINET EDU DOS THE CABINET OTHERS 27

28 Understanding the Challenge Why this is happening: Regulation under the Clean Air Act (CAA) is the single greatest piece of leverage supporters of climate legislation have over industry. Imposition of the wide range of CAA programs and standards to greenhouse gases would almost certainly be more costly, and likely more burdensome, than any piece of legislation. The argument goes: [Insert bill name here] may be expensive, but it s a heck of a lot better than letting EPA use the Clean Air Act. 28

29 The Sales Pitch EPA and most environmental groups believe, at least publicly, that the Clean Air Act can be applied piecemeal. Here s how they want to do it: Step One: Endangerment Finding GHGs from motor vehicles or new motor vehicle engines are air pollutants that cause or contribute to air pollution (i.e., climate change) which may reasonably be anticipated to endanger public health or welfare. Step Two: Motor vehicles rule CAA 202(a)(2) allows EPA to phase in regulations to permit the development and application of requisite technology, giving consideration to the cost of compliance. Raise/alter threshold for PSD to allow EPA to go after coal but leave everyone else untouched (temporarily) Step Three: Targeted New Source Performance Standards Start with the big guys, work toward the little guys 29

30 WHAT IF THEY RE WRONG? 30

31 Triggering Events for Regulation 1. Endangerment Section 202(a) requires, in pertinent part: The Administrator shall by regulation prescribe (and from time to time revise) in accordance with the provisions of this section, standards applicable to the emission of any air pollutant from any class or classes of new motor vehicles or new motor vehicle engines, which in his judgment cause, or contribute to, air pollution which may reasonably be anticipated to endanger public health or welfare. The problem: the endangerment language in Section 202(a) is also found in sections 108 (NAAQS), 111 (NSPS), 112 (HAP), 115 (international air pollution), 211 (fuels), 213 (nonroad engines), 231 (aircraft) and 615 (ozone protection). What this means: It wouldn t take more than a lawsuit to trigger NAAQS or NSPS. The argument would be simple: if GHGs from cars endanger public health and welfare, then GHGs from [insert source] do as well. 2. GHGs become subject to regulation under the Act Triggers Prevention of Significant Deterioration (PSD) and Title V permitting To date, GHGs are not subject to regulation Mainstream environmental groups want to use this to stop new (and ultimately existing) coal plants by forcing them to go through PSD permitting The Problem: Fringe environmental groups want to use PSD to regulate all sources of GHGs, large and small What this means: No more construction! 31

32 How the Cascade Works EPA makes endangerment finding for motor vehicles Environmental group (probably Center for Biological Diversity) sues to trigger endangerment provisions in Sections 108 (NAAQS) and 111 (NSPS) Once the regulatory needle is pushed far enough either through litigation or by EPA s own actions GHGs become subject to regulation under the Act. Once GHGs are subject to regulation, PSD and Title V apply. NAAQS and NSPS will take years (or decades) to resolve through litigation. However, PSD and Title V will apply instantly! 32

33 NAAQS and NSPS 1. National Ambient Air Quality Standards (NAAQS) NAAQS compliance has traditionally been measured locally, but EPA admits it will have to take national average concentrations for CO2. The result: depending on where the NAAQS are set, the entire nation will either be in or out of attainment. Because concentrations will not wane, no matter what we do (due to international emissions), we will never be able to escape nonattainment. In addition to the severe penalties levied for states in nonattainment (loss of highway funds, strict pollution controls), construction in nonattainment areas can only be done with an offset in other words, for each new source brought online, one or more sources must be taken offline to compensate. The ratio is normally more than 1:1. This is called Nonattainment New Source Review. Because the technology does not exist to perform many normal business functions (e.g., heat, manufacturing) without necessarily producing CO2, NAAQS for CO2 means a permanent scaling-down of society. 2. New Source Performance Standards (NSPS) NSPS requires EPA to promulgate and enforce standards of performance for both new and existing stationary sources. For CO2, the categories are limitless because everything emits CO2. Potentially everyone using a source of CO2 emissions may have to install best available technology to control their emissions. The federal government and states will have to create a CO2 police force to handle all the new categories. EPA theorizes it can use cap-and-trade to make NSPS work, but the CAIR decision (North Carolina v. EPA, 531 F.3d 896 (D.C. Cir. 2008)) implies that cap-and-trade may not be not available under the Clean Air Act. 33

34 Prevention of Significant Deterioration (PSD) What it is: PSD is a preconstruction permitting requirement for new construction or modifications to stationary sources (buildings) that emit over 250 tons per year (tpy) of a regulated pollutant (100 tpy for 28 listed industrial categories). It currently does not apply to greenhouse gases. However, the minute GHGs become regulated under the Clean Air Act, PSD will apply. EPA issued 282 total PSD permits last year. What it means: If GHGs are regulated under the Act, over 1.2 million buildings in the U.S. will become exposed to PSD. Why it is important: PSD for GHGs will delay virtually all construction in the U.S. and will cost staggering amounts of money. According to EPA, the PSD process in 2008 imposes 866 hours of burden on the industry applicant and costs $125,120. Applicants are required to determine and install Best Available Control Technologies (BACT) to limit emissions. The entire process takes 6 to 12 months to complete. Construction on covered sources may not commence without a PSD permit. 34

35 PSD: Who would be regulated by EPA 35

36 Breakdown of PSD Costs Activity Hours Cost Determination of Compliance Requirements 170 $16,592 Obtain Guidance on Data Needs 120 $11,712 Preparation of BACT Analysis 102 $9,957 Air Quality Modeling 200 $19,521 Determination of Impact on Air Quality Related Values 100 $9,762 Post-Construction Air Quality Monitoring 50 $4,879 Preparation and Submittal of Permit Application 60 $5,858 Public Hearings 24 $2,343 Revisions to Permit 40 $3,904 Other Related Costs TOTAL $40, $125,120 36

37 Opening the Toolchest to the NIMBYs 37

38 Will Either Path Actually Work? 20 38

39 Ask Yourself This: What Will Fill the Void? ACES takes (fossil fuel) energy out of the mix, but what does it realistically put back in? Renewables? Consider the RES: Half of the electricity generated in the U.S. comes from coal Less than 2% comes from renewables» 0.01 from solar» 0.44 from wind» 0.36 from geothermal Waxman changed the definition of renewables to broaden it considerably but still left out nuclear (our largest carbon-free baseload energy supply) and CCS! 39

40 Be Realistic! If you take out fossil fuels, allow nuclear and CCS! Must be international in scope! Lead by example and others will follow is not going to happen. Streamline facility siting and environmental permitting Call off the hounds! NIMBYS and activist and anti-coal lobby have stalled or killed countless energy projects around the country and in Indiana And not just fossil fuel projects! 40

41 Is There a Way Forward? 20 41

42 U.S. Chamber s Five Principles 1. Preserve American jobs and the competitiveness of U.S. industry 2. Provide an international solution that includes developing nations 3. Promote accelerated development and deployment of greenhouse gas reduction technology; 4. Reduce barriers to the development of climate-friendly energy sources 5. Promote energy conservation and efficiency. 42

43 Conclusion: Make Your Voice Heard! Indiana has a lot to gain or lose in this game. The most important thing is that your Senators and Congressmen hear from you. 43